Rozen v. The Queen, 85 DTC 5611, [1986] 1 CTC 50 (FCTD)

Strayer, J.:—This is an appeal by the taxpayer from a decision of the Tax Court of Canada with respect to assessments of his tax for the 1979 and 1980 taxation years. The Minister disallowed as deductions from income automobile expenses in the amount of $1,448 and $1,959 respectively, said to have been incurred by him in the course of his work.

It is agreed by the parties to this action that the only issue for me to determine, as it was for the Tax Court of Canada, is whether the automobile expenses referred to above were properly deductible from the plaintiff’s income as deductions allowed by paragraph 8(1 )(h) of the Income Tax Act. More specifically, it was agreed that the taxpayer qualified for these deductions under subparagraphs 8(1)(h)(i) and (iii) and that it only remains to be determined whether he qualifies under subparagraph 8(1)(h)(ii). This subparagraph requires that the taxpayer

under the contract of employment was required to pay the travelling expenses incurred by him in the performance of the duties of his office or employment.. .

The Tax Court of Canada held that the plaintiff was not required to pay the expenses for which the deductions were claimed and that therefore these expenses were not deductible. New evidence was presented in the trial before me, however.

During the years in question the plaintiff was employed by the accountancy firm of Thorne Riddell, at its office in downtown Vancouver, first in 1979 as an Audit C.A. Student, and in 1980 as a Senior Staff Accountant (he having become a chartered accountant by that time). The terms of his contract of employment are partly to be found in written instruments such as the letter of offer of employment and in excerpts from the Office Procedures Manual. Other terms can be implied from the common understanding of employer and employee. Evidence was given in this respect by both the taxpayer and Mr. Bruce Pentecost, who is manager of personnel administration at this office of Thorne Riddell and was during the taxation years in question. No evidence was introduced to contradict the understanding which both the employee and the employer's representative had as to the terms of the contract.

One must consider the terms of the contract of employment to see whether the plaintiff was required to pay such travelling expenses. The only relevant written instruments appear to be sections from the Office Procedures Manual. That with respect to “Miscellaneous Expense Reimbursement" provides that

A mileage allowance as may be determined from time to time will be paid to all staff using a car on approved firm or client business outside the City of Vancouver, based on the distance from the office to the client.

The section pertaining to “Travel Expenses" states (apparently in relation to out-of-town trips in circumstances where the alternative would be air travel) that

If authorized, the firm will pay a mileage allowance at the prevailing rate.

It also states that “out-of-town engagements to which staff commute daily do not qualify for travel expenses other than mileage."

It was common ground that the plaintiff had received reimbursements from his employer in the amount of $62 in 1979 and $192 in 1980 with respect to use of his car on out-of-town travel. He was reimbursed nothing for the use of his car within the city of Vancouver, except apparently for parking expenses.

The evidence of both witnesses was that the job for which the plaintiff was hired, consisting predominantly of auditing and bookkeeping for clients, required that the plaintiff spend much of his time in the offices of clients. The clients of this Thorne Riddell office are scattered throughout the city of Vancouver, the lower mainland of British Columbia, and some beyond. It was therefore clear to anyone joining the firm that he would not be working much of his time at the downtown offices of Thorne Riddell. It was also clear that he would not be reimbursed expenses for getting to the offices of clients except in the situations covered by the Manual, namely where clients are outside the city of Vancouver. In such cases specific provision was made in the Manual for payment of mileage if one used one's own car or apparently where applicable payment of economy airfare. According to both witnesses, not only was there no express provision for payment of mileage for the use of automobiles within the city of Vancouver, there was no arrangement for reimbursement of expenses for any other form of transportation within that city. Therefore employees such as the plaintiff who might choose to travel by bus or taxi to go to clients’ offices would not be entitled to reimbursement for the costs of such transportation.

Clear evidence was given by both witnesses, and I accept it, that it was the expectation of the employer that persons in the position of the plaintiff would use their own car for the purposes of going to work at clients’ offices. Not only is this the most practical means of getting themselves and their files to clients’ offices in a timely manner, but it is also thought to be most in keeping with their professionalism. It was stressed that such accountants are expected to conduct themselves “in a professional manner.” It was sometimes necessary to take clients to lunch for example, and it would not be appropriate to do so on a bus. The Manager of Personnel Administration said that if an auditor did not have a car or was no longer able or willing to use it, the firm would probably dismiss him.

In the absence of any evidence to the contrary, I have concluded that the plaintiff was indeed required to use his automobile in order to do his job and that he was responsible for the costs of operating his automobile. This was basically an implied term of his contract and one which is apparently common with such auditors employed by accountancy firms: see Mackin v. M.N.R., [1982] C.T.C. 2431; 82 D.T.C. 1408 (T.R.B.). No provision whatever was made for his employer reimbursing him for expenses incurred for use of his car within Vancouver. The fact that there was some reimbursement, based on a mileage rate fixed by the employer, with respect to out-of-town use does not prevent the taxpayer's automobile expenses from being within subparagraph 8(1)(h)(ii): See Faubert v. M.N.R., [1979] C.T.C. 2723; 79 D.T.C. 641 (T.R.B.); Cival v. The Queen, [1981] C.T.C. 392 at 399; 81 D.T.C. 5311 at 5316-17 (F.C.T.D.) (reversed on other grounds by the Federal Court of Appeal [1983] C.T.C. 153; 83 D.T.C. 5168). I believe this situation can be distinguished from that in Cival, supra, where the Federal Court of Appeal held that the taxpayer was not obliged to use his own automobile in his work as a payroll auditor for the Department of National Revenue. The Court there held that nothing in the contract of employment obliged him to use his car even though provision was made for mileage allowance where he did use it. It was held that this was at most a “unilateral contract”: that is, he did not have to use his car but if he did use it then he was entitled to be paid mileage. In the present case the employee did not have the option if he was to do his job properly.

I believe also that subparagraph 8(1 )(h)(ii) can be interpreted somewhat more broadly. Even if the plaintiff were not specifically required to use his car, he was required to pay his travelling expenses incurred by him in the performance of his duties and this would also bring him within the subparagraph. The evidence was clear that to do his job the plaintiff had to go to the offices of a variety of clients. No provision was made for reimbursement for transportation for getting to those offices except with respect to those outside of Vancouver where at least car mileage was allowed. If an employee is obliged to travel to do his work and his employer is not prepared to pay the exact and total cost of transportation, then he must come within the requirements of subparagraph 8(1)(h)(ii). This question was not under consideration before the Federal Court of Appeal in Cival. On this basis, it is not really very important whether the plaintiff here was obliged to use his car or not: He was obliged to get himself and his papers to the firm's clients and there was no arrangement, at least in the circumstances relevant to this case, whereby the employer undertook to pay the total transportation costs.

The appeal should therefore be allowed in respect of taxation years 1979 and 1980.

Appeal allowed.